Deutsche Bank lied, U.S. says

Lender ‘lied’ to get into federal home-loan insurance program: suit

By

AlistairBarr

SAN FRANCISCO (MarketWatch) — Deutsche Bank AG, Germany’s biggest lender, and a subsidiary called MortgageIT “repeatedly lied” to get into a U.S. government program that insures home loans, according to a civil lawsuit filed Tuesday.

Once in the Direct Endorsement Lender program of the Federal Housing Administration, Deutsche Bank and MortgageIT “recklessly selected mortgages that violated program rules in blatant disregard of whether borrowers could make mortgage payments,” the suit alleged.

The suit was brought by Preet Bharara, U.S. attorney for the Southern District of New York.

Deutsche Bank’s
DB, -0.12%
(DBK) shares fell 1.4% to $64.25 in U.S. action after the complaint was released.

“We just received the complaint and are reviewing it,” Deutsche Bank said in an emailed statement. “We believe the claims against MortgageIT and Deutsche Bank are unreasonable and unfair, and we intend to defend against the action vigorously.”

Between 1999 and 2009, MortgageIT was an approved Direct Endorsement Lender, and it endorsed more than 39,000 mortgages with an original balance of more than $5 billion for Federal Housing Administration insurance, according to the complaint.

As of February, the U.S. government has paid more than $386 million in FHA insurance claims and related costs on defaulted mortgages underwritten by MortgageIT. It expects to pay “hundreds of millions of dollars” more as other MortgageIT home loans default in coming months and years, the suit said.

The U.S. government is seeking treble damages and penalties under the False Claims Act. It also wants compensatory and punitive damages, according to the complaint.

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